Economics
What Is Economics?
"Economics is the study of how individuals and groups make decisions with limited resources as to best satisfy their wants, needs, and desires."
Ceteris paribus
A Latin phrase that means while certain variables change, "all other things remain unchanged."
invisible hand
Adam Smith's metaphor to explain how an individual's pursuit of economic self-interest can promote the well-being of society as a whole
Market Economy
An economic system where decisions about production, price and other economic factors are all determined by the law of supply and demand.
Incentive
An expectation or reward that encourages people to behave in a certain way.
Complement
Ecross is a negative coefficient.
Substitutes
Ecross is a positive coefficient
The 5 Economic Needs
Food, Shelter, Clothes, Warmth, and Water
Factors of production
Land, labor, and capital; the three groups of resources that are used to make all goods and services
scarcity
Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.
total revenue
Tells you what happens to total revenue when there is a change in price
Economic System
The method used by a society to produce and distribute goods and services.
The Invisible Hand
The price mechanism, the rise and fall of prices that guides our actions in a market.
capital resources
The tools, equipment, and buildings that are used to produce goods and services
What is considered a positive relationship?
Two variables have a positive relationship when an increase in the value of one variable is associated with an increase in the value of another variable It is illustrated by a curve that slopes upward The supply curve is an example of a positive relationship (positive relationship between price and quantity. As the price increases the quantity available increases)
Three Economic Questions
What goods and services should be produced? How these goods and services should be produced? For whom should these goods and services be produced?
Monopoly
When only one company has control of the market
Globalization
When people and organizations around the world begin to connect through business, economics, and social issues
embargo
a government order imposing a trade barrier; a limit or ban on trade
elasticity of demand for exports
a measure of the responsiveness of the quantity demanded of exports when there is a change in the relative price of exports
incentive
benefit offered to encourage people to act in a certain way
Adam Smith
is often touted as the world's first free-market capitalist. While that designation is probably a bit overstated, Smith's place in history as the father of modern economics and a major proponent of laissez-faire economic policies is quite secure. Read on to learn about how this Scottish philosopher argued against mercantilism to become the father of modern free trade.
scarcity-forces-tradeoffs principle
limited resources force people to make choices and face tradeoffs when they choose.
private property
property owned by individuals or companies, not by the government or the people as a whole
inelastic demand
quantity is insensitive to a change in price
variables have a non-linear relationship
relationship do the variables have if the curve is not a straight line
natural resources
resources (actual and potential) supplied by nature
entrepreneur
someone who organizes a business venture and assumes the risk for it
law of supply
states that when prices decrease, quantity supplied decreases, and when prices increase, quantity supplied increases (when the price goes down so does the amount made; when the price goes up so does the amount made)
Trade-offs
the alternative choices people face in making an economic decision
Opportunity Cost
the cost of the next best alternative among a person's choices-the time, money, or resources that are given up or sacrificed to make the final choice
tradeoff
the exchange of one benefit or advantage for another that is thought to be better.
opportunity cost
the value of something that is given up by choosing one alternative over another
variables have a linear relationship
type of relationship do the variables have if the curve is a straight line?
marginal benefit
what you gain by adding one more unit
Scarcity
when there is not enough of something to satisfy how much everyone wants of it.